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The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But in contrast you can make much more than 100% if the company does well. For instance the Allison Transmission Holdings, Inc. (NYSE:ALSN) share price is 206% higher than it was three years ago. Most would be happy with that. It's also good to see the share price up 13% over the last quarter. But this could be related to the strong market, which is up 5.6% in the last three months.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
View our latest analysis for Allison Transmission Holdings
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Allison Transmission Holdings was able to grow its EPS at 34% per year over three years, sending the share price higher. In comparison, the 45% per year gain in the share price outpaces the EPS growth. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. It is quite common to see investors become enamoured with a business, after a few years of solid progress.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Allison Transmission Holdings has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Allison Transmission Holdings' TSR for the last 3 years was 222%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's nice to see that Allison Transmission Holdings shareholders have received a total shareholder return of 89% over the last year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 20% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Allison Transmission Holdings is showing 2 warning signs in our investment analysis , you should know about...